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David Burrows of Barometer Capital Management.The Globe and Mail

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Money manager David Burrows believes the worst is over in the current bear market and better times are ahead for investors who put their money in the right places.

“Now that we’ve had two positive quarters in the major North American indexes – and no bear market in history continued after two positive quarters – we believe we’re into the next cycle,” says Mr. Burrows, president and chief investment strategist at Barometer Capital Management Inc. in Toronto, who oversees about $1-billion in assets.

“The markets aren’t going to go straight higher, but we think we have 18 to 24 months of strong returns in front of us.”

Not all sectors will do well, but Mr. Burrows believes those benefiting from a higher-inflation environment will outperform. As a result, his portfolios are now titled toward dividend-growing companies and shorter-duration bonds.

Barometer’s balanced fund has about 68 per cent in equities including energy, industrials, basic materials, financials and technology stocks. About 30 per cent is in fixed income, mostly short-term bonds with durations of one to two years, and 2 per cent is in cash. The fund was down 5.4 per cent last year and dropped 3 per cent for the first three months of this year. The balanced fund has seen a compound annualized return of 9 per cent over the past three years as of March 31. The performance is based on total returns, net of fees.

His firm also has alternative strategies, including the Barometer Global Music Royalty Fund, which co-owns songwriter copyrights on four of the top 10 streamed songs in history including Blinding Lights by The Weeknd, Sunflower by Post Malone, One Dance by Drake, and Closer by the Chainsmokers. The music fund returned 11.5 per cent in 2022 – the first full year for the fund – which reports annually.

The Globe and Mail spoke with Mr. Burrows recently about what he’s been buying and selling, including a recent takeover target in his portfolio.

Describe your investing style.

Our clients are mostly private investors who tend to be more conservative than institutional clients. As a result, we’re quite tactical in managing our exposures. We start with a top-down view of the world and identify key themes in the market. For example, we believe a new bull market for commodities began in 2020. Another example is inflation. We’ve gone through a disinflationary period for about 40 years until 2020, where sectors that benefited from low-interest rates led the market. We believe we’ve entered a reflationary period and that it’s our job to find the leaders in this new environment.

What’s your take on the current market environment?

We believe October last year was the low for the current bear market. While there were drops in December and March, that’s part of the bottoming process, and not all market segments were treated equally during those months. We believe the broader market likely will continue to improve over the coming year or two. We think the markets have already discounted a recession – and that we may be in one now. Companies that will do well are those with the ability to raise their dividend and reset prices regularly as business conditions change.

What have you been buying or adding?

One stock we’ve been buying over the past year, and adding to, is Teck Resources Ltd. TECK-B-T. We also plan to continue buying Teck even after the stock’s rise this week following the unsolicited takeover proposal from Glencore PLC. Teck has rejected the offer, and we see it as a lowball offer to what the company is worth today, not to mention the new copper production coming down the road. Teck is also spinning off its coal business.

An energy name we’ve owned for more than a year, and continue to buy, is Canadian Natural Resources Ltd. CNQ-T. We own it because the company has completed its targeted debt repayments. We also think it will continue to be a great dividend grower, and its ability to buy back shares will only be enhanced now that it has reached its debt level targets.

What have you been selling or trimming?

We have been steadily reducing high-dividend paying defensive utilities, real estate investment trusts (REITs), telecoms and consumer staple companies that are most like fixed income in favour of dividend growers. Some names we’ve sold include Campbell Soup Co. CPB-N and RioCan REIT REI-UN-T. With RioCan, we believe real estate valuations will likely be pressured in a world of higher rates for longer. Campbell Soup is a defensive company with a stable dividend, but we prefer to move more toward dividend growers with the pricing power to offset sticky inflation.

Name a stock you wish you bought or didn’t sell.

We have a disciplined stop-loss strategy [the automatic sale of a stock once it drops to a certain price] and got stopped out of our position in oil and gas company Hess Corp. HES-N when it fell to US$140 in early February. It then fell to around US$113 but is now back above US$140. I think we’ll eventually buy it back because it has some of the highest-quality assets in the energy space.

What advice do you have for new investors?

We believe in finding securities that are good and getting better. We never look for securities that are broken and getting fixed because, if you get it wrong, you can lose a lot of money. Good and getting better is where you see multiple expansions. You only need about 20 positions to build a diversified portfolio, so look for the best-quality investments.

This interview has been edited and condensed.

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